Transcript Export Opportunities & Competition in Brazil February, 2012

Domestic Consumption’s Impact on Export
Potential in Brazil
February, 2012
Facing a new world
"I'm excited to meet
Mickey. It's always nice
to meet a world leader
who has bigger ears
than me"
For my daughter Mickey
Mouse is a true world
leader, but he is not
alone…
Kai Lan is a children's
television show, that
teaches how to speak in
Mandarin
40% increase in Visas for
China and Brazil “rapidly
growing economy, huge
population… and fastest
growing middle classes”
Brazilian Economy
Brazil Highlights
• Although affected by the global downturn of
recent years, the next five years are forecasted
to be a period of steady growth and continued
stability
Real GDP Growth (% p.a)
9%
8%
7%
4.3%
• One of the 10 biggest economies in the world
• Conservative monetary and fiscal policies (i.e.
control of government expenses and inflation
targeting)
• Credibility from international governments
and financial community
• Significant growth in direct investments
• The current government has strong public
support
Source: BCB / Macroconsulting
3%
3.0%
2%
2006
2007
2008
2009
2010
4.5%
4.5%
3.5%
2011 2012e 2013e 2014e 2015e
Consumer Inflation (% p.a)
The strength of internal consumption
Motorcycles sales
Automobile sales by type
2,500
4,000
Gasoline/Diesel
3,000
1,500
Thousands
1,000
2,500
2,000
1,500
1,000
500
500
16
6
14
5
Million
10
Source: Andav/USDA
Exports
Dom. Cons.
3
2
1
0
Exports
Dom. Cons.
2010
2009
2008
2007
2006
2005
2004
4
12
6
2003
2000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2011
Soybean Oil Consumption
Soybean Meal Consumption
8
2002
0
0
2001
Thousands
2,000
Million
Flexfuel
3,500
The strength of internal consumption
For the farmers, internal consumption is minimizing our logistical problems!
Geographical problem: distance to ports
Soybean Basis: Mato Grosso x CBOT (BRL/ bag)
10
5
3
2
Oct/11
Mar/11
Aug/10
Jan/10
Jun/09
Nov/08
Apr/08
Sep/07
Feb/07
Jul/06
Dec/05
May/05
Oct/04
Aug/03
Mar/04
-5
Jan/03
-
-10
4
1
-15
-20
Brazilian soybean Premium – May Delivery
50
0
Source: Rabobank, Bloomberg
*Average discount price in region versus CBOT
2011 nov
2011 ago
2011 mai
2011 fev
2010 nov
2010 ago
2010 mar
2009 dez
-150
2009 set
 Monopoly on Railroad operations
 Waterways and railroads still unexplored
2009 mar
-100
2007 out
The multimodal alternatives can still be further developed
2008 dez
-50
2008 set
4 1.891Km
100
2008 jan
1 1.600Km
2 2.011Km
3 2.000Km
How the production can meet demand?
Let´s do some math…
Conversion cost: $370 acre
Profitability (new area)
Local Price
Yield
gross revenue
$9,5 bu
40 bu/acre
$380 acre
Production cost
$315 acre
Net return
$65 acre
Payback period
5,7 Years
Land Price
$675 acre
$1,900 acre
+ 180%
Source: IMEA
Agricultural Farmland in Brazil
The greatest amount of available arable land along with a abundant rainfall level gives Brazil
an unbeatable combination. Brazil has the potential to more than double its grain area only
by converting current pasture land.
Brazilian Land Availability Breakdown (Million hectares)
Virgin area (1)
420
15
Pasture
84
851
29
303
Total
area
Amazon
forest
Pantanal
Cerrado
Indian
reservation
Available
land
Note: (1) Approximately 70% of the total gross area can’t be used in agriculture and has to be destined to legal reserves
Source: Embrapa and FNP - Elaboration Macroconsulting
Currently with
crop production
A new route to the north
New routes and north ports
According some studies the
exports through north ports will
increase more than 500% in the
next 10 years;
Main routes:
BR 163
North/South railroad
But also it will be easier to reach
the Brazilian northeast region.
We´re not in heaven…yet!
The Brazilian tax system is shoddy, marked by over taxation
Despite the improvement, the transport system is still lagging
behind, with tremendous inefficiency and high costs
Labor cost is increasing at fast pace
International commercial tariffs are still impeding the entry of
Brazilian products into overseas market
Final messages
1. At moment the major competitor of Brazilian exporters is
Brazilian consumption
2. Intensive use of land - The next revolution will be in the
cattle beef chain
3. For the continuation of Brazilian agricultural growth, we
have to face two sleeping giant: LABOR COST and
COMMERCIAL TARIFFS
Famato - Mato Grosso Farm Bureau
Thanks!
Seneri Kernbeis Paludo
Executive Director
Who we are
What we do
Established in 1965, represents more than 26,000
 Focus on the farmers needs
landowners and farmers in the State of Mato Grosso.
 Policy Advocacy
To achieve our goals, we are present in 86 counties and
 Research and dissemination of knowledge
split the work between SENAR, Rural Unions and IMEA.
 Market development
These four entities together form the Famato System.
 Communication and public relation
 Leadership, training, information and education